The report, by the Farrell Grant Sparks consulting group (FGS) for the the Unite trade union, also concludes that the establishment of such a third force would not mean any additional bill for the taxpayer.

The Exchequer is already committed to re-capitalising Irish Nationwide building society, which would be part of the proposed merged entity along with the EBS society and the banking arm of Irish Life & Permanent, Permanent tsb.

The Government would therefore have a stake in the group, even if it injected no extra capital and Irish Life would be in line to provide €500 million in capital.

FGS, in the report published this morning, says it does not have definitive figures for the levels of capital in Bank of Scotland (Ireland) (BoSI) but understand that it is "appropriately positioned."

BoSI is part of the HBOS bank which was taken over by Lloyds Banking Group after it ran into financial difficulties.

Including the subsidiary of such a large British bank would be an unusual step, but the report says it could bring advantages.

"The involvement of the Lloyds Banking Group in this manner will mean that the third banking force will have the name of an international player behind it.

"The authors see this as a major advantage."

"The available financial data indicates that this new entity would have a combined loan book of approximately €75bn, post-NAMA. In terms of scale, this compares favourably with both AIB and Bank of Ireland."

Loans

Workers at the UK bank in Ireland fear that its parent may close down the Irish operation if it is not included in a 'third force'.

Finance Minister Brian Lenihan is reported to take the idea seriously, but observers say there would still have to be rationalisation and cuts in staffing.

The report also shows that including BoS(I) would worsen the stretched loan to deposit ratios of the other institutions.

Loans at BoS(I) are a huge 4.25 times deposits.

The estimated ratio of 2.5 for a combined group could limit credit growth, although it would be in line with other Irish banks. But the report says the group could play a major role in lending to small business.

"When one considers the ongoing SME focus, and expertise that has characterised Bank of Scotland (Ireland), it is clear that a Third Banking Force which includes the latter would be best placed to play this critical role in supporting the indigenous SME sector," the report says.